Shared services aids acquisition integration

29 November 2013

Royal DSM has transformed itself from a commodity chemicals company to one focused on high-performance materials and ingredients for the food, feed and beverage markets. Steve Dunkerley caught up with CFO Rolf-Dieter Schwalb before the Q4 FDE briefing in Amsterdam − and the company’s decision to spin off its pharma division − to talk about DSM’s new shared services centre (SSC) in Hyderabad, India, and the role it plays in speedy acquisition integration.

Over the last 100 years, DSM has transformed its portfolio several times. Originally a mining company, DSM moved into fertiliser in the 1930s and petrochemicals in the 1950s. By the 1990s, it had taken its first step into nutrition and biotechnology.

A marked shift in direction took place in 2001 as it sold the petrochemicals division and acquired the vitamins business Roche.

Then, in 2007, DSM again divested 15-20% of its company as it prepared for a spree of acquisitions totalling €2.8 billion, the majority in the nutrition space. The portfolio is now split into materials sciences and life sciences, which each contribute roughly 50% of its $12 billion in annual sales.

Shared services and data management

DSM also has a growing presence in emerging markets. By 2015, it expects half of its sales to come from high-growth economies such as Brazil, China and India; the latter, in particular, is a current focal point. It is no surprise that Hyderabad was selected as the location for the company's new shared services centre (SSC) in order to align with the rest of the business.

"Shared services helps to support acquisition integration in a much more agile way than what was possible in the past."

The SSC has over 75 people delivering transactional finance and administrative (F&A) processes, and plans to increase headcount to over 250 by 2015.

"To help the connection between the back office in India and the business, we have a few what we call 'front offices' around the world," explains Rolf-Dieter Schwalb, chief financial officer at DSM. "They are also part of the shared services organisation and intermediaries between the back office in India and the businesses. They also function as a buffer for solving issues - particularly in the first year."

The impetus behind the company's relatively late move into shared services was wrapped into its profit improvement programme - and the cost benefits are obvious.

"Also, this shared services project is a catalyst for process standardisation in the company," continues Schwalb. "Take purchase to pay, a very simple process in theory; you order something, you get the goods and services delivered, and you get an invoice and then you pay. Very often if you don't focus early on process, then you get broken processes, where you touch the same invoice several times until it is ready for payment because people are not careful enough."

Naturally, some of the biggest challenges in migrating operations to India were cultural and people related.

"You want to move the accounting function of a certain location to Hyderabad," says Schwalb. "You hire the people in India and send them to that operation and they sit next to the people whose job will be going to India. Those people basically train their successor and then lose their role. You have to manage this carefully, taking care of people from DSM and at the same time being very open with communication at all levels and helping people find alternative roles within the company."

From an operational perspective, properly harnessing data from end-to-end processes relies on improving master data quality in the enterprise resource planning (ERP) system, and investing in business process management to ensure the processes are well documented.

"You have to do something with your internal controls and segregation of duties to adapt to this new situation, since it's a very broad-based project," adds Schwalb.

As the function develops, the case for a bigger business-services model in India gains credence, but anything more at this moment in the project's evolution would premature. But key performance indicators (KPIs) such as the speed between what is received and executed, and responsiveness to problems, are encouraging.

Mergers and acquisitions

In terms of growth strategy, DSM has been very acquisitive over the last three to four years. Notable transactions include Martek ($1.1 billion), Ocean Nutrition ($536 million), Tortuga ($600 million) and Fortitech ($629 million). This means that acquisition integration and delivering synergies have been a focal point for DSM.

"Younger people in developed economies are no longer considering car ownership a symbol of status, and preferring cost-effective alternatives."

The basic synergy for the first three deals was global infrastructure and an extension of the active ingredients portfolio. The last acquisition, Fortitech, was already a global company serving the food industry with custom blends and premixes, and as such was a seamless fit for DSM's human nutrition and health business.

"We had a premix business already, but the Fortitech acquisition has given us another route to market for own ingredients, as Fortitech did not buy from us before," adds Schwalb.

With this increased momentum in terms of acquisitions, DSM has a very clear vision of how to integrate a company and remain agile.

"We have a very experienced in-house M&A team, which is very important to us," Schwalb says. "We are rather risk averse, so if we find problems in due diligence, we would rather step back from the whole idea. Shared services also helps to support acquisition integration in a much more agile way than what was possible in the past."

And even though DSM doesn't have a single instance of ERP running through the organisation, Schwalb doesn't see this as a major hurdle in creating shared services, since it has developed a 'middleware' between the ERP system and the shared services centre, so it acts in the same way as if it were a sole instance of ERP.

"We are a company with many portfolio transformations and divestments in its history, and it was never intended for us to get a single instance of ERP," he says.

Rolf-Dieter Schwalb became CFO and a member of DSM’s managing board in October 2006.
Rolf-Dieter Schwalb (right) opens DSM’s shared services centre in Hyderabad in the presence of Shri Ponnala Lakshmaiah (left), minister for IT and communications, Andhra Pradesh, India.